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Deadline reminder – ED on impairment

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19 Jun 2010

We remind you that comments are due on 30 June 2010 on Exposure Draft: Financial Instruments: Amortised Cost and Impairment.

The ED was issued on 5 November 2009. The ED proposes to modify the way impairment losses are recognised on financial assets measured at amortised cost.
  • Current standard: IAS 39 recognises impairment of financial assets using an 'incurred loss model'. An incurred loss model assumes that all loans will be repaid until evidence to the contrary (known as a loss or trigger event) is identified. Only at that point is the impaired loan (or portfolio of loans) written down to a lower value.
  • Proposed standard: The model proposed in the ED is an 'expected loss model'. Under that model, expected losses are recognised throughout the life of a loan or other financial asset measured at amortised cost, not just after a loss event has been identified. The expected loss model avoids what many see as a mismatch under the incurred loss model – front-loading of interest revenue (which includes an amount to cover the lender's expected loan loss) while the impairment loss is recognised only after a loss event occurs.

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